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Technology Stocks : Coyote Network Systems (CYOE), Mixing It Up, IP and ATM -- Ignore unavailable to you. Want to Upgrade?

To: Mama Bear who wrote (312)	11/14/1999 11:01:00 PM
From: Q.	Respond to of 360

re. the 8-k, Barb, here's my analysis, which suggests that CYOE is basically writing off an investment in a subsidiary that was a flop. At the bottom of this post, I paste a copy of the original announcement from June 1998, when they invested cash to form the subsidiary that they are now selling. Note that they invested $240 k. Which wasn't much. But they'll get much less than that back. This was a small potatoes invesment that appears to have flopped. They aren't getting cash back according to the latest 8k. What they are getting instead is a royalty of "$0.0025 per minute of telecommunications traffic", To figure how much that is worth, I checked the 10k, which said that "In fiscal 1999, AGT had nine wholesale customers who purchased an aggregate of 4,300,000 minutes of traffic." Which isn't much. Multiplying those two numbers, I estimate that CYOE's royalties will be about $8 k per year. Which is almost zero. That's what they'll be getting for their original $240 k investment. That's a pretty poor ROI, isn't it? Therefore, in my opinion, CYOE is basically writing off their investment in this subsidiary. It was a failure. Of course that's not how they announced it. In fact, they'll be able to report a big paper gain, and a big improvement in their working capital, because they will get rid of a big chunk of the "deferred revenue and customer deposit" that previously sat on the balance sheet as a current liability. ************ Here's the excerpt from the June 1998 8k: which I estimate will be worth Item 5. Other Events. 1. Formation of Coyote Gateway, LLC. On April 16, 1998, the Company established Coyote Gateway, LLC, a Colorado limited liability company ("CGL"). The Company owns 80% of CGL, and American Gateway Telecom, Inc., a Texas corporation ("AGT") owns 20%. The Company founded CGL, with a capital contribution of $240,000 and has agreed to make certain additional working capital contributions through April 15, 1999. In consideration of its 20% ownership interest, AGT contributed assets to CGL, consisting of customer contracts for the transmission of up to 31 million minutes of international traffic monthly to 11 countries when fully deployed, and vendor and carrier contracts to service those minutes. CGL has employed AGT's operating and management personnel, and they are participating in stock option and bonus plans tied to the success of the venture.